The legalization of marijuana in several states has opened up a new income sector for many Americans. With promise of lucrative returns, people are moving into this sector. But be careful, banks are now rejecting buyers from taking out home loans when their income is based in this sector.
We have just seen a buyer endure this ordeal. The CEO of a major company that works on medical and edible marijuana has been rejected from Wells Fargo. This buyer has a PhD from Princeton University. His income and credit score would make him an easy approval for the size of loan he was trying to obtain. The actual LTV of the loan was only 32%, the buyer was mostly cash.
Talking to a senior manager at one of the top 5 largest lenders in the United States, I was told that this buyer would never have an issue on borrowing based upon his credit, income, purchase price or loan amount. This was directly related to the industry his company dealt within.
Below are the written regulations I was sent from an insider of Wells Fargo.
Q: If a customer lives in a state that has legalized marijuana, do the Corporate Credit Policy restrictions still apply?
A: Although many states have legalized medical marijuana and some states have legalized the production, distribution, sale and possession of marijuana, these activities remain a crime under Federal law. Under the Controlled Substances Act of 1970, it remains a crime to possess, grow, or distribute marijuana, or to knowingly open, lease, rent, use or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using marijuana. Given the unresolved conflict between State Law and Federal Law, LOBs must take appropriate actions as noted by the following FAQs when an applicant is associated with a marijuana-related business, even if that association is in a state that has legalized marijuana.
Q: If marijuana-related income is identified during the loan origination process, what are LOBs expected to do?
A: If during the normal course of an LOB’s loan application, underwriting, or customer due diligence (CDD) processes the LOB becomes aware that a person’s income is derived from a known marijuana-related business the LOB should exclude any marijuana-related income.
I'm sure this will change in the upcoming years. Until then, it will effect more and more buyers who are deversifing thier income in this new sector.